Deutsche Bank analysts reported a strong rally in US shares, with the S&P 500 reaching fresh record highs as hopes rose for an Iran–US resolution and oil prices fell. They linked the move to reduced concerns about a stagflation shock and relief from lower energy costs.
The S&P 500 rose 4.54% over the week, its largest weekly gain since May 2025, and closed at a record 7,126 after gaining 1.20% on Friday. It also moved above 7,000 for the first time on Wednesday.
The Nasdaq Composite increased 6.84% for the week and added 1.52% on Friday to hit a new record. It extended its winning streak to 13 consecutive days, the longest such run since 1992.
The analysts noted that market rallies during conflicts can reverse if expectations of peace weaken. They referenced an earlier episode in the Ukraine war, when the S&P 500 rose more than 10% in the opening weeks before hopes of a quick settlement failed to materialise.
We are seeing a market running on pure optimism, with the S&P 500 hitting a new record of 7126 based on hopes of a US-Iran deal. The significant drop in oil prices has eased stagflation fears, fueling the largest weekly rally since May of last year, 2025. This situation feels fragile and is based more on sentiment than on a confirmed, lasting agreement.
This is not a time for complacency, as we must remember the sharp S&P 500 rally during the first weeks of the Ukraine war in 2022. That rally was built on similar hopes for a quick resolution, but it reversed painfully when those hopes faded. Recent reports still suggest that critical points in the current negotiations remain unresolved, meaning the positive headlines could reverse just as quickly.
Given this setup, we should look at the low cost of protection in the derivatives market. The VIX index, a measure of expected market volatility, has fallen to 13.2, its lowest point in over a year, making options relatively cheap. This presents a valuable opportunity to buy protection before any negative geopolitical surprises cause volatility to spike.
A direct strategy would be to buy put options on the major indices, such as the SPX and QQQ, to hedge against a potential downturn. With the Nasdaq having just completed a 13-day run of consecutive gains for the first time since 1992, the market is historically overextended. Last week’s data shows that call option buying volume hit a 24-month high, which is a classic sign of excessive bullishness that often precedes a market correction.
We can also use derivatives to focus on sectors most sensitive to a breakdown in talks. Options on energy ETFs would react immediately to any renewed tension in the Strait of Hormuz. Buying puts or put spreads on these instruments could offer an efficient hedge against the primary driver of this recent market rally disappearing overnight.
